News / Resources

Topics covered in this issue of the Health Law Update include:

• Supreme Court Slams Door on Post-April 2005 Claims That Medical Residents Are Not Subject to FICA 
• Game Changer: Hospital Value-Based Purchasing Program Proposed Regulations 
• Pre-Sale Due Diligence Disclosure Results in $30 Million Settlement 
• DOJ Continues Focus on Kyphoplasty: Seven More Settlements Across Six States 
• The Kiss of Death: OIG’s Exclusion Authority 
• Shifting Political Winds and the Impact on the Healthcare Industry: Webinar Recording Now Available 
• Save the Date: 22nd Annual Legislative and U.S. Government Policy Seminar 
• Events Calendar

SUPREME COURT SLAMS DOOR ON POST-APRIL 2005 CLAIMS THAT MEDICAL RESIDENTS ARE NOT SUBJECT TO FICA

In a decision announced January 11, 2011, the U.S. Supreme Court rejected a challenge by the Mayo Foundation for Medical Education and Research to the IRS 2005 regulations which effectively classified all medical residents as outside the “student exception” to Federal Insurance Contributions Act (FICA) taxes because they normally perform services 40 or more hours per week. The 8-0 decision (Justice Kagan not participating) authored by Chief Justice Roberts ended more than two decades of litigation relating to appropriate classification of medical residents for the purposes of paying employment taxes imposed by FICA. The decision impacts virtually all academic medical centers and teaching hospitals. While the industry was hopeful, many tax and healthcare professionals who closely monitored the case had anticipated the outcome, particularly after oral argument of the case. The Court briefly reviewed the highlights of the Medical Resident-FICA controversy noting the historical case-by-case determination by the government to applying the student exception, the 1998 decision by the Eighth Circuit Court of Appeals in Minnesota v. Apfel that medical residents could not be categorically excluded from student status under then-existing regulations, that more than 7,000 claims seeking FICA tax refunds were filed and the ultimate Treasury Department determination that “additional regulatory clarification” was needed. These 2005 claims and the litigation they spawned, in which the government had mixed results, lead to the regulations effective April 2005. These regulations were promptly challenged by the Mayo Foundation, seeking a refund of FICA taxes paid for the second quarter of 2005. While the Mayo Foundation was successful at the district court, the court of appeals reversed the district court and upheld the regulations. The U.S. Supreme Court agreed to hear the case and argument was held in November 2010.

The Supreme Court’s decision deals extensively with the appropriate legal standard for reviewing agency regulations. After concluding that the plain text of the FICA statute lacked the precision necessary to determine whether medical residents were clearly excluded from the statute’s definition of “students,” the Court determined that the appropriate standard for review was that articulated in its Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. decision. The Court had little difficulty or hesitancy in determining that the regulation was a “reasonable interpretation” of the statute. The Court’s mandated standard of deference to the government regulation supported the regulatory approach of drawing a bright line “between workers who study and students who work” at 40 hours of required service, concluding that it was “a perfectly sensible way of accomplishing” the distinction. The Court concluded that the Treasury Department’s classification of medical residents as the type of workers intended to both contribute to and benefit from the Social Security System was not irrational.

Importantly, while the Court’s decision effectively ends any refund claims for the periods after April 2005, the Court’s decision had no effect on the IRS March 2010 administrative determination that accepted the position that medical residents were students not subject to FICA tax for the periods prior to the effectiveness of the 2005 regulations. Academic medical centers with refund claims continue to report significant administrative challenges in meeting the IRS requirement to secure the refund for the pre-2005 refund claims.

For more information, please contact Thomas W. Kahle, or 513.929.3414.

GAME CHANGER: HOSPITAL VALUE-BASED PURCHASING PROGRAM PROPOSED REGULATIONS

The Centers for Medicare & Medicaid Services (CMS) recently published proposed regulations to implement a hospital value-based purchasing (VBP) program. Under the proposed rule, value-based incentive payments will be made to hospitals for cost reporting years beginning after October 1, 2012, if the hospital meets certain performance standards for the fiscal year. Consequently, providers who do not meet the quality standards will, in effect, have a one percent payment reduction beginning in 2013.

The VBP program will change the financial stakes for hospitals for Medicare and perhaps other third party payers. While actual payment adjustments won’t start until after October 1, 2012, the measurement periods commence as early as July 2011. Therefore, hospitals must begin analyzing their data to assure that their performance meets or exceeds the various VBP performance thresholds or to implement corrective actions. Hospitals also must carefully monitor forthcoming measures to assure that they meet the performance or improvement thresholds.

The VBP will be funded through a reduction to hospital diagnosis-related group (DRG) payments (excluding disproportionate share, indirect medical education, low volume adjustment or outlier payments) beginning at one percent in 2013 and increasing to two percent by 2017. Overall, the distributive impact of the VBP is estimated at $850 million for FY 2013.

The VBP generally is applicable to all hospitals other than psychiatric hospitals, rehabilitation hospitals, prospective payment system- (PPS) exempt children’s hospitals, PPS-exempt cancer hospitals, critical access hospitals, long-term acute care hospitals and hospitals located in Puerto Rico or other territories. Hospitals ineligible for the VBP bonus program in an applicable fiscal year would be those determined to have an immediate jeopardy deficiency [as defined at 42 C.F.R. § 489.3] or a payment reduction under the Hospital IQR program, as hereafter defined, or for which there are insufficient numbers of cases (ten cases) or data (less than four performance measures are applicable).

Performance Measures

Initial Performance Measures

The 18 incentive performance measures initially proposed by CMS are a subset of the 45 quality measures already adopted for 2011 by the Medicare Hospital Inpatient Quality Reporting Program (Hospital IQR program) [formerly known as the Reporting Hospital Quality Data for the Annual Payment Update Program, or RHQDAPU].

Seventeen of the measures will be clinical process of care measures and will account for 70 percent of the hospital’s total performance score. The final measure will be from the results of the Hospital Consumer Assessment of Healthcare Providers and Systems survey (HCAHPS), intended to capture the patient’s perception of the healthcare experience, which will count for 30 percent of the hospital’s total performance score.

For 2014, CMS intends to add the following additional outcome measures:

• Agency for Healthcare Research and Quality (AHRQ) patient safety indicators (PSI), inpatient quality indicators and composite measures.
• AHRQ, PSI and nursing-sensitive care measures.
• Acute myocardial infarction, heart failure and pneumonia mortality measures (Medicare patients).

CMS also is seeking comments on an efficiency measure, such as Medicare spending per beneficiary, and what should be included in the spending computation, if that is the chosen efficiency measure.

In evaluating the measures, CMS proposes to use a three-domain performance scoring model which considers the clinical process of care domain, the patient experience of care domain and, beginning in 2014, the outcomes domain. Hospital performance scores will be based on the higher of the hospital’s achievement against an industry benchmark standard or, if higher, the hospital’s improvement of its own performance from its base period for each measure. For new hospitals and hospitals that did not submit measure data for the baseline period, CMS is proposing that these hospitals be included in the VBP program, but that they be scored only on the achievement criteria, as no improvement metric can be calculated.

Proposed Initial Measures for FY 2013 VBP Program

CLINICAL PROCESS OF CARE MEASURES
MEASURE IDENTIFIER	MEASURE DESCRIPTION
Acute myocardial infarction
AMI-2	Aspirin prescribed at discharge
AMI-7a	Fibrinolytic therapy received within 30 minutes of hospital arrival
AMI-8a	Primary PCI received within 90 minutes of hospital arrival
Heart failure
HF-1	Discharge instructions
HF-2	Evaluation of LVS function
HF-3	ACEI or ARB for LVSD
Pneumonia
PN-2	Pneumococcal vaccination
PN-3b	Blood cultures performed in the ER dept. prior to initial antibiotic received in hospital
PN-6	Initial antibiotic selection for CAP in immunocompetent patient
PN-7	Influenza vaccination
Healthcare-associated infections
SCIP-Inf-1	Prophylactic antibiotic received within one hour prior to surgical incision
SCIP-Inf-2	Prophylactic antibiotic selection for surgical patients
SCIP-Inf-3	Prophylactic antibiotics discontinued within 24 hours after surgery end time
SCIP-Inf-4	Cardiac surgery patients with controlled 6AM postoperative serum glucose
Surgeries
SCIP-Card-2	Surgery patients on a beta blocker prior to arrival that received a beta blocker during the perioperative period
SCIP-VTE-1	Surgery patients with recommended venous thromboembolism prophylaxis ordered
SCIP-VTE-2	Surgery patients who received appropriate venous thromboembolism prophylaxis within 24 hours prior to surgery to 24 hours after surgery
HCAHPS SURVEY MEASURE
MEASURE IDENTIFIER	MEASURE DESCRIPTION
Hospital Consumer Assessment of Healthcare Providers and Systems Survey	Communication with nurses Communication with doctors Responsiveness of hospital staff Pain management Communication about medicines Cleanliness and quietness of hospital environment Discharge information Overall rating of hospital

The 2013 incentive payments will be based on a comparison of data collected from July 1, 2011 through March 31, 2012, against the hospital’s data for July 1, 2009 through March 31, 2010. Likewise, the outcome measures for 2014 will be based on data from July 1, 2011 through December 31, 2012, compared to the hospital’s performance from July 1, 2008 through December 31, 2009. Consequently, providers have only a short time period to review their operations to assure their performance will meet the incentive payment thresholds.

Identifying and Adding New Measures

Going forward, CMS intends to rely on a mix of standards, processes, outcomes and patient experience measures, including measures of care transitions and changes in patient functional status in developing its quality measures. CMS, to the extent possible, intends to use nationally endorsed measures that are aligned with best practices which are adjusted for risk and patient population/provider characteristics. CMS also intends to develop measures that are consistent across Medicare and Medicaid public reporting and payment systems, including those used in the Hospital Outpatient Quality Data Reporting Program, the Physician Quality Reporting Initiative and the quality reporting programs implemented for home health agencies, skilled nursing facilities and end-stage renal disease facilities.

New measures will be selected based upon their relation to CMS’s six quality aims—effective, safe, timely, efficient, patient-centered and equitable healthcare.

CMS’s current and long-term priority topics include prevention and population health, safety, chronic conditions, high-cost and high-volume conditions, elimination of health disparities, healthcare-associated infections and other adverse healthcare outcomes, improved care coordination, improved efficiency, improved patient and family experience of care, effective management of acute and chronic episodes of care, reduced unwarranted geographic variation in quality and efficiency and adoption and use of interoperable health information technology.

CMS plans to add additional measures to the VBP program, including, but not limited to, AHRQ and hospital-acquired condition measures that have been specified for the Hospital IQR program and proposes that the performance period for those measures will begin one year after the measures have been displayed on the Hospital Compare website. However, CMS also indicated that it intends to add new measures if a measure has been part of the Hospital IQR program and has been on the Hospital Compare website for a year, without the notice and comment rulemaking “because of the urgency to improve the quality of hospital care, and in order to minimize any delay to take substantive action in favor of patient safety.” Measures also would be removed through a subregulatory process. However, each of the measures must be established at least 60 days prior to the beginning of the applicable performance period.

CMS indicated that it would not include Hospital IQR program measures that do not discriminate among providers. For example, CMS found that all but a few hospitals have achieved a similarly high level of performance on the following measures: AMI-1 aspirin at arrival; AMI-5 beta blocker at discharge; AMI-3 ACEI or ARB at discharge; AMI-4 smoking cessation; HF-4 smoking cessation; PN-4 smoking cessation; and SCIP-Inf-6 surgery patients with appropriate hair removal. Hence, the foregoing measures would not be included in the VBP measures.

Quality Payment Scoring

To assess the performance of individual hospitals, CMS will score each hospital based on achievement and improvement ranges for each applicable measure. Scores are percentage of points achieved by the hospital for that domain/total points possible for the hospital for the criteria applicable to the hospital.

Clinical Process of Care Measures Score

In determining the achievement score, CMS will award hospitals from zero to ten points along an achievement range between the achievement threshold (the minimum level of hospital performance required to receive achievement points) and the benchmark. For any achievement measure where a hospital performs at or better than the benchmark, the hospital would receive ten points for the measure. If performance is below the threshold, the hospital would not receive any points. The base achievement performance standard threshold will be set at the median measure of hospital performance during the baseline period (e.g., July 1, 2009—March 31, 2010).

Improvement performance standard thresholds will be tied to the specific hospital’s performance during the base period. In determining improvement scores, CMS will award hospitals from zero to ten points along an improvement range—the scale between the hospital’s prior score on the particular measure during the baseline period and the benchmark. The benchmark will be set at the mean performance level for the measure by the top ten percent of hospitals for that measure. For any improvement measure where a hospital performs at or better than the benchmark, the hospital would receive ten points for the measure. If performance is below the hospital’s baseline period performance level, the hospital would not receive any points.

With respect to the clinical process of care and outcome domains, the points earned for each measure applicable to the hospital would be summed (weighted equally) to determine the total points earned by the hospital for the particular domain. The points then would be normalized to account for measures that do not apply to the hospital (e.g., less than ten cases). However, for a domain to be accorded weight by CMS, at least four measures within the domain must apply to the hospital.

HCAHPS Survey Measure Score

A similar scoring methodology will be used for the HCAHPS Survey Measure, except that all measures will be applicable to all VBP-eligible hospitals. However, for the HCAHPS Survey Measure to be applicable to a hospital, the hospital must report at least 100 HCAHPS surveys during the performance period. To ensure at least adequate performance on all eight of the HCAHPS Survey Measure criteria, CMS has added a consistency score to recognize consistent achievement by a provider on the HCAHPS Survey Measure criteria.

A hospital will receive zero consistency points if its performance on one or more HCAHPS Survey Measure criteria was at least as poor as the worst-performing hospital’s performance on that dimension during the baseline period. A hospital can receive a maximum score of 20 consistency points if its performance on all eight HCAHPS Survey Measure criteria was at or above the achievement threshold (50 percent of hospital performance during the baseline period). Consistency points between those extremes will be awarded proportionately according to the number of percentiles. The lowest dimension score is between the 0th and 50th percentile of hospital performance during the baseline period.

Total Performance Score

Thus for 2013, a hospital’s total VBP score will be equal to 70 percent X Percentage Clinical Process of Care Measures Score + 30 percent X Percentage HCAHPS Survey Measure Measures Score.

Payment Adjustments

CMS anticipates that it will begin reducing DRG payments by one percent by January 2013, which will allow the one percent reduction to be applied to all FY 2013 discharges, including those that have occurred beginning on October 1, 2012.

Because the proposed performance period would end only six months prior to the beginning of FY 2013, CMS will not be able to determine a hospital’s performance score or final value-based incentive payment adjustment 60 days prior to the start of FY 2013 on October 1, 2012. Therefore, it has proposed informing hospitals through their QualityNet account at least 60 days prior to October 1, 2012, of the estimated amount of its value-based incentive payment for FY 2013 discharges based on estimated performance scoring and value-based incentive payment amounts which will be derived from the most recently available data.

Publication of Performance Scores

Section 1886(o)(10)(A)(i) of the Social Security Act requires CMS to make individual hospital performance information available to the public, including hospital performance on each measure that applies to the hospital, the performance of the hospital with respect to each condition or procedure and the total hospital performance score.

To meet this requirement, CMS has proposed publishing hospital scores with respect to each measure, each hospital’s condition-specific score (that is, the performance score with respect to each condition or procedure, for example, AMI, HF, PN, SCIP, HAI), each hospital’s domain-specific score and each hospital’s total performance score on its Hospital Compare website. The Hospital IQR program data validation and data correction procedures will be used to validate and correct VBP published data.

Hospital-specific data for FY 2013 will be available on the hospital’s QualityNet account on November 1, 2012, and hospitals should promptly review the accuracy of this information. For more information, please contact Robert M. Wolin, or 713.646.1327.

PRE-SALE DUE DILIGENCE DISCLOSURE RESULTS IN $30 MILLION SETTLEMENT

Detroit Medical Center (DMC) recently agreed to pay the federal government $30 million to settle allegations arising from the hospital’s financial relationships with referring physicians. The dollar amount of the settlement illustrates the seriousness with which the government views the requirements for structuring physician/hospital financial relationships in compliance with the Stark and anti-kickback laws.

DMC was in the process of selling its ten hospitals and institutes to Vanguard Health Systems (Vanguard) and the settlement resulted from DMC’s self-disclosure of the financial relationships during pre-sale due diligence. The self-disclosed relationships included the rental of office space to, and personal services arrangements with, physicians without written and executed leases and agreements in place for the entire term, and at rates that may not have been consistent with fair market value. The settlement agreement identified 65 alleged improper lease arrangements and 50 personal services arrangements.

The settlement agreement also cites DMC’s provision of business courtesies, such as tickets for sporting events, to referring physicians in excess of permissible limits and the provision of signage and advertising materials on terms not consistent with commercial reasonableness and fair market value. All physicians with alleged improper financial relationships with DMC were identified in the settlement agreement.

The government also alleged that DMC violated the False Claims Act (FCA) in submitting claims for evaluation and management services furnished by DMC-employed physicians, citing lack of available documentation to support the level of care billed.

For more information, please contact Donna S. Clark, or 713.646.1302.

DOJ CONTINUES FOCUS ON KYPHOPLASTY: SEVEN MORE SETTLEMENTS ACROSS SIX STATES

On January 4, 2011, the U.S. Department of Justice (DOJ) announced that seven hospitals, located in Florida, Mississippi, Texas, South Carolina, North Carolina and Alabama agreed to pay more than $6.3 million to resolve FCA allegations related to kyphoplasty, a procedure used to treat certain spinal fractures often related to osteoporosis. This announcement represents the fourth round of such settlements—the government resolved kyphoplasty FCA claims with 18 other hospitals from 2009 to 2010. The 2011 settlements now bring the total amount paid in such cases to approximately $26 million.

These settlements illustrate the DOJ’s continued aggressive pursuit of its fraud enforcement initiative relating to Medicare claims for kyphoplasty. The DOJ initiative stems from an FCA investigation in which it alleged that Kyphon—a manufacturer whose medical device is used in the kyphoplasty procedure—misled physicians and hospitals about the medical necessity of an inpatient stay following the procedure, as well as the use of particular billing codes related to the procedure and inpatient stay. The Kyphon case settled for $75 million. The 2011 settlements stem from whistleblower actions alleging the seven hospitals overcharged Medicare between 2000 and 2008 by performing kyphoplasty on an inpatient basis in order to increase reimbursement rather than performing the services as less costly outpatient procedures.

According to William J. Hochul, Jr., U.S. Attorney for the Western District of New York, “These settlements show the continuing commitment by the U.S. Attorney’s Office to investigate and recover any improper billings for kyphoplasty procedures which the hospitals inappropriately classified as inpatient, rather than outpatient.”

As discussed in the September 16, 2010, issue of the Health Law Update, the American Hospital Association has expressed concerns over the aggressive nature of these investigations.

For more information, please contact B. Scott McBride, or 713.646.1390, or Ameena N. Ashfaq, or 713.646.1329.

THE KISS OF DEATH: OIG’S EXCLUSION AUTHORITY

Baker Hostetler attorneys B. Scott McBride and Summer D. Swallow authored a January 2011 article in the Health Care Fraud Report, BNA Insights. Titled “The Kiss of Death: OIG’s Exclusion Authority,” the article explains the federal government’s latest actions to strengthen its permissive exclusion authority—with a focus toward individual accountability in its fraud and abuse enforcement activities.

View Full Article

SHIFTING POLITICAL WINDS AND THE IMPACT ON THE HEALTHCARE INDUSTRY: WEBINAR RECORDING NOW AVAILABLE

On December 17, 2010, Baker Hostetler hosted “Shifting Political Winds: The Impact on the Healthcare Industry,” a webinar addressing the new political climate in Washington and its anticipated impact on the healthcare industry. The event featured the firm’s Healthcare Public Policy team, in concert with The Advisory Board. Attendees heard insights from former Congressman Mike Oxley and from Lucy Calautti, former House and Senate Chief of Staff—both resident in Baker Hostetler’s Washington, D.C., Government Policy office—regarding the future of health reform. Baker Hostetler health industry partner Susan Feigin Harris and Matt Eirich, Executive Director of the Health Care Advisory Board (a division of The Advisory Board Company) provided an in-depth analysis of the anticipated impact on the healthcare industry.

Listen to recording of webinar.

SAVE THE DATE: 22ND ANNUAL LEGISLATIVE AND U.S. GOVERNMENT POLICY SEMINAR

On Wednesday, May 4, 2011, Baker Hostetler will welcome clients and friends of the firm to the 22nd Annual Legislative and U.S. Government Policy Seminar in Washington, D.C. A prominent panel of speakers is expected to again include leaders from the U.S. House and Senate, as well as key administration officials who will advise attendees about upcoming legislation and policy changes affecting their business.

As in prior years, healthcare industry clients will assemble in Baker Hostetler’s Washington, D.C., offices on the day preceding the Seminar for a special presentation on issues facing the health industry, including immediate questions being raised by the implementation of the Patient Protection and Affordable Care Act. Be sure to look for additional information in the weeks ahead on what promises to be a very informative event.

EVENTS CALENDAR

January 27-28

Houston partner Susan Feigin Harris will speak on “Taking the Lead in ACO Development: The Academic Medical Center’s Role in ACO Development” at the Legal Issues Affecting Academic Medical Centers and Other Teaching Institutions program sponsored by the American Health Lawyers Association in Washington, D.C.

February 18

Houston partner Susan Feigin Harris will speak on “The Affordable Care Act: Will It Run Out of Juice or Keep on Ticking” at the February meeting of the Healthcare Financial Management Association in Houston, Texas.

February 24

Houston partner Susan Feigin Harris will speak on “The Affordable Care Act: We Had the Audacity . . . Now What?” at the 12th Annual Conference on Emerging Issues in Healthcare Law sponsored by the American Bar Association in New Orleans, Louisiana.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2011 Baker & Hostetler LLP